I'm a thirty-year veteran of Wall Street and an outspoken critic of ineffective regulation and an advocate for economic and political sanity. Following a career as an in-house lawyer and industry regulator, I am now in private practice representing member firms, registered persons, Whistleblowers, and defrauded investors. I publish the RRBDlaw.com and the BrokeAndBroker.com websites.

9/22/2011 @ 9:47AM3,533 views

A.G. Edwards Loses Training Fee Case to Pro Se Stockbroker

What would you pay McDonald's to learn how to make hamburgers? What would you pay a brokerage firm to learn how to sell stocks?

In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in January 2011, Claimant A. G. Edwards went after former employee Nicholas D. Innerbichler for his failure to reimburse training costs that became due upon his resignation. Acting through its lawyer, Claimant A.G. Edwards initially requested $75,000 compensatory damages plus $7,500 interest, plus costs of collections, plus costs of the FINRA arbitration, plus attorneys’ fees. At the close of the FINRA hearing, Claimant amended its request for compensatory damages to $70,250. In the Matter of the FINRA Arbitration Between A.G. Edwards, a division of Wachovia Securities, LLC n/k/a Wells Fargo Advisors, LLC, Claimant, v. Nicholas D. Innerbichler, Respondent (FINRA Arbitration 11-00389, September 19, 2011).

Pro Se Respondent

Respondent Innerbichler appeared without legal counsel and represented himself pro se. Respondent generally denied the allegations and asserted various affirmative defenses.

According to FINRA’s online records, Respondent Innerbichler entered the securities industry in September 2004 with Claimant and passed his Series 7 exam in November 2004. FINRA’s records indicate that Respondent was registered with Claimant until March 2006 but remained in the company’s employ until August 2006 (the five-month discrepancy in dates could be a data-entry error by FINRA or could accurately represent a lapse in severance of registered and non-registered capacities). Thereafter, it appears that Innerbichler left Claimant’s employ and joined joined MetLife Securities Inc., where he remained until March 2008.

Bill Singer’s Rant

By and large, I hate — perhaps I should add “detest” — these Wall Street Training Fee cases. The theory behind this practice is that a brokerage firm invests its time and money training raw globs of clay into becoming high-powered, professional stockbrokers. Depending upon the training agreement, the bargain is that the firm bestows the benefits of all that fine training upon you with the understanding that you will remain employed for at least a certain period of time (as set forth in your Training Agreement).

The inherent threat in the training arrangement is that if you leave before the expiration of the term, you must repay the training costs. How much do you have to repay? To supposedly make matters simple in the event of litigation, your employer graciously sets a valuation for the repayment of the training in the Training Agreement — and it’s often some whopping figure like $75,000.

Now, don’t get me wrong, I sort of understand why this punitive practice exists. Brokerage firms figure that any number of their competitors would just love it if someone else would pick up the training costs for all the newbies. Sure — let someone else triage through the numbskulls and weed them out, let someone else teach the basics of what’s a stock and what’s a bond, and let someone else incur the risk if the kid washes out after a few months of cold calling. At the end of all of that, if I can snap up a freshly trained youngster and put him or her in production, gee, I save a lot of bucks and time.

Like I said, conceptually, I get the rationale. On the other hand, as I said earlier, I hate and detest the practice of enforcing trainee fees. I mean, where does this nonsense stop? If you take a minimum wage job at McDonald’s and they train you in how to flip burgers and toast buns, should that employer be able to ding you for all that training if you quit and go to Burger King or Wendy’s? Yeah, I know, stocks ain’t burgers. It’s different. Sure, it’s always different — except, when you think about it, it’s really not.

For one thing, I’ve rarely, if ever, seen any trainee get the value of what their former firm now claims was the fair price-tag for the training. Sure, a Wall Street employer can put in an agreement that a trainee who leaves early has to repay $50,000 or $75,000 or whatever. On the other hand, once you start drilling down into the actual costs of providing stockbroker training and you start to examine what’s actually taught, it’s hard to reconcile the demanded dollar amount of the sought repayment with the value of the training.

Last I heard, annual tuition for Harvard was about $50,000, which is not to say that a year at Harvard is worth $50,000, but it is a reference point for the absurd demands that are involved with these Wall Street training fee arbitrations. Ultimately, much of what passes for securities-industry training could be found in a Securities for Idiots book, which doesn’t cost anywhere near five-figures.

Frankly, I see the cost of training your salesforce as a risk that an employer should shoulder; and not one that should be pushed off on some kid who thinks that she might want to become a stockbroker, only to learn that it’s not the right career. Moreover, training folks to learn how to make dozens of daily cold calls, how to overcome customers’ objections, and how to push house product too often finds its way into the curriculum.

Wall Street as an industry should underwrite the cost of educating its registered persons. Forcing a broker to stay on with an employer for another year or so in order to avoid having to repay training costs is not best for the industry or the investing public. I sure as hell don’t want a disgruntled, unhappy stockbroker servicing my needs — and the ramifications to the employing brokerage firm for forcing such a person to remain employed may be quite negative in the event of a customer lawsuit.

Similarly, if the ultimate concern here is to not bestow a benefit upon a competitor, then why not create something akin to the present Broker Protocol and require new employer firms to reimburse the former employer for the remaining pro rata training costs?

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